Tax Disputes

Welcome to Francis Wilks & Jones, a leading boutique firm specialising in commercial litigation and with a particular emphasis on providing services to SME companies and businesses, business people, Directors and Shareholders. Whatever your situation, whether you are facing tax arrears, insolvency, are having difficulties with creditors, are concerned about you or your business’ financial affairs or are facing pressure or concern as to your tax liabilities, please contact one of our specialist lawyers for your expert friendly free consultation where we can discuss a structure to manage your exit from this dilemma.

 

  1. What is Disguised Remuneration?

Disguised remuneration describes earned income received via a scheme as a loan or some other non-taxable distribution which disguises the payment of income.   If this scheme falls within the definition of a disguised remuneration scheme, an account of the tax liabilities on this income may have to be made to HMRC, even some years later.

The rise of such disguised remuneration has led to changes in the finance and tax legislation designed to prohibit the use of such schemes, and anti-avoidance generally.

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  1. What is Disguised Remuneration legislation?

Disguised remuneration refers to income received, usually by an individual from a company, via a tax scheme as a loan or some other non-taxable distribution of income which disguises the payment.   If this scheme falls within the definition of a Disguised Remuneration scheme, an account of the tax liabilities on this income may have to be made to HMRC, up to 20 years later.

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  1. Disguised Remuneration HMRC guidance

HMRC guidance on disguised remuneration was is regularly updated and available online and this has led to the implementation of updated rules under the Finance Act 2017 and the Finance Act (Number 2) 2017. HMRC’s guidance on Disguised Remuneration outlines the problem of tax avoidance and the steps currently being taken to tackle the failure to account for tax on income.

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  1. Disguised Remuneration and recent legislative changes

As of writing the most recent changes respect of Disguised Remuneration tax schemes are the Finance Acts 2017, which comprise the Finance Act 2017 and the Finance Act (Number 2) 2017, and the current Worldwide Disclosure Facility.  The very recent legislative changes provide a liability for the loan charge (or the “DR Charge”) for any tax schemes ongoing as at 5 April 2019.

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  1. Changes to Disguised Remuneration legislation

The tax treatment of Disguised Remuneration tax schemes is constantly being revised and reinterpreted by legislation published on an almost annual basis via the annual Finance Acts.  These changes most recently were incorporated by the Finance Act 2017 and the Finance Act (No.2) 2017, both of which sought to deal with double taxation and, more importantly for Disguised Remuneration schemes, a loan charge of 50% to be imposed as an Accelerated Payment Notice from 5 April 2019.

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  1. Disguised remuneration Finance Bill 2017

The Finance Act 2017 and the Finance Act (No. 2) 2017 included changes to the tax legislation proposed in 2016 to deal with further developments in tax avoidance, and as part of HMRC’s anti-avoidance measures in respect of Disguised Remuneration schemes.  In summary, the Disguised Remuneration Finance Bill 2017 implements loan charges to be made against tax schemes where the income paid is disguised as a loan (currently the most common form of Tax Avoidance method).  

We refer to our webpage which deals with legal changes in respect of Disguised Remuneration schemes here.

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  1. Disguised Remuneration definition

The Definition of Disguised RemunerationIncome or payments received in reward for employment (or services provided) via an arrangement designed to disguise such remuneration as a non-taxable payment, most popularly as a loan, with the object of avoiding the tax liability that would otherwise exist.  Such Disguised Remuneration schemes encompass Employee Benefit Trusts and Contractor Loan Schemes.

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  1. Disguised Remuneration rules

The government has introduced legislation at the beginning of 2018, comprising the Finance Act 2017 and the Finance Act (No.2) 2017, which seeks to deal with Disguised Remuneration tax avoidance schemes.  The Disguised Remuneration Rules will implement, from 5 April 2019, a loan charge on such tax schemes not disclosed by 31 December 2018, which can extend to all schemes (and tax unaccounted for) going back to 1999.

These new rules combine with the DOTAs scheme, General Anti-abuse Rules and Worldwide Disclosure facility to tackle the increasingly frequent use of tax avoidance schemes.

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  1. Are Disguised Remuneration Schemes legal?

If a tax scheme is solely set up for the purpose of not paying tax then the answer to this question is yes, although we stress that there is a grave difference between tax avoidance and tax evasion (which is a criminal offence).  A Disguised Remuneration scheme by its very definition is a scheme set up to disguise income being paid and therefore comprises a scheme which is designed to avoid the tax liability otherwise payable to HMRC, which is tax avoidance and prohibited under UK law.

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  1. What are some examples of Tax Avoidance?

Tax avoidance is the operation of a policy, scheme or arrangement which seeks, directly or indirectly, the non-payment of tax by way of a reduction in an individual or business’ tax liability that would otherwise be due, or the wholesale avoidance of this tax liability.

Please see our website here which describes the difference between Tax Planning and Tax Avoidance.

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  1. How does new legislation affect my Tax Avoidance Scheme?

The Finance Act 2017 and the Finance Act (No.2) 2017 (“the Finance Acts 2017”) implements further amendments to the definition of income (for the purpose of charges to income tax) and introduce loan charges for Tax Avoidance Schemes in existence and continuing to operate as at 5 April 2019.  This loan charge will be cumulative and apply to all tax years from 1999, potentially leading to severe financial consequences for any beneficiary of such schemes.

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  1. HMRC guidance on Disguised Remuneration

HMRC guidance on Disguised Remuneration was last published (as of writing) on 7 November 2017 with the objective of identifying Disguised Remuneration Tax Avoidance Schemes.  This guidance emphasises the need for Disclosure via the DOTAs procedure to avoid the consequences of the loan charge liability, which will be enforceable from April 2019.

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  1. What is Tax Avoidance?

Tax Avoidance is the operation of a policy, scheme or arrangement which seeks, directly or indirectly, to avoid the payment of tax by re-describing income or earnings as something that would not ordinarily be chargeable to tax (for example a loan or gift) which in turn will eliminate or reduce the sum chargeable to tax. 

Tax avoidance is illegal within the UK under various overlapping pieces of tax legislation which can potentially leave the taxpayer with more than one tax obligation.  Please see our website here which describes the difference between Tax Planning and Tax Avoidance.

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  1. Is Tax Planning legal?

Planning your affairs to accommodate the liability for tax is perfectly legal provided it is not designed to disguise the income received as something else, solely for the purpose of avoiding a tax liability that should be chargeable. 

Please click here for an explanation of the difference between tax planning and Tax Avoidance.

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  1. Tax Avoidance v Tax Evasion

Tax Avoidance is the legitimate exploitation of tax loopholes to reduce the individual or business’ tax liability whereas Tax Evasion is the illegal evasion of taxes properly due.  In the UK, both Tax Avoidance and Tax Evasion are illegal, although Tax Evasion is more likely to lead to criminal consequences.

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  1. What is Tax Avoidance and is it legal?

Tax avoidance is the exploitation of tax loopholes to reduce the individual or business’ tax liability.  In the UK, it is more commonly a term used to describe the operation of a policy, scheme or arrangement which seeks, directly or indirectly, to avoid payment of tax by way of a reduction in an individual or business’ tax liability, or alternatively the wholesale avoidance of this tax liability.

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  1. Is Tax Avoidance a crime?

For many people, Tax Avoidance is the legitimate use of tax laws to reduce their tax liability and is a perfectly acceptable arrangement which cannot be criticised.  For others, it is morally repugnant and demonstrable of a criminal intent to defraud the government of revenues to which it is properly entitled.  However, Tax Avoidance is not a crime.

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  1. Can you go to jail for not paying your taxes?

The fraudulent evasion of taxes is a criminal offence and can lead to committal to prison for any offences comprising cheating HMRC, providing false documents or information and the fraudulent evasion of excise duty.  For most offences, the sentence can be up to 7 years although there is an exception for cheating HMRC, which can lead to a life sentence.

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  1. How long do you go to jail for tax evasion?

The fraudulent evasion of taxes is a criminal offence and can lead to committal to prison for cheating HMRC, providing false documents or information and the fraudulent evasion of excise duty.  For most offences, the sentence can be up to 7 years although there is an exception for cheating HMRC, which can lead to a life sentence.

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  1. Tax loopholes for small business UK

Tax loopholes describe circumstances where the law may not properly provide certainty on the tax treatment and accordingly provide opportunities for individuals and companies to exploit such circumstances and set-up arrangements to use such “loopholes” for the purpose of avoiding tax.  Accordingly HMRC have adopted a reactive strategy, implementing legislation or seeking decisions at Tax Tribunals, to prevent Tax Avoidance.

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  1. What constitutes Tax Evasion?

Tax evasion is the illegal evasion of taxes properly due, usually demonstrated by a dishonest intention to avoid accounting for and paying taxes due on an individual or business’ income.  In the UK, Tax Evasion is a criminal offence and may lead to Code 9 investigations and, ultimately, prosecution with sentences up to 7 years for most offences.

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  1. What is Tax Evasion?

Tax Evasion is a criminal offence of dishonestly failing to comply with the legal requirements to provide accurate and truthful information in respect of one’s tax affairs or deliberately failing to account for taxes properly due.  Tax evasion is slightly different to Tax Avoidance, which focuses more on the protection of the integrity of the tax system by way of Anti-Avoidance measures designed to recover taxes due plus penalties for non-payment.

In the UK, Tax Evasion is a criminal offence and may lead to Code 9 investigations and, ultimately, prosecution.

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  1. What is a Tax Avoidance scheme?

A Tax Avoidance Scheme is a policy, scheme or arrangement which seeks, directly or indirectly, the non-payment of tax by exploiting a tax loophole to reduce an individual or business’ tax liability or the wholesale avoidance of this tax liability. 

A Tax Avoidance Scheme will normally be promoted by a third party and facilitated by a Trust, which (simply put) would receive the employee’s income as a loan and remit it on to the employee, who would not repay the loan. 

Please see our website here which describes the difference between tax planning and tax avoidance.

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  1. Employee Benefit Trust definition

Definition of an Employee Benefit Trust:

An Employee Benefit Trust is a trust set up specifically to hold assets to provide benefits to employees and their families.  An Employee Benefit Trust has in recent years been used as a tax efficient method of enabling payments or distributions to employees by loaning the income payable to them to the Employee Benefit Trust which, as a loan, is not subject to tax.

The use of an Employee Benefit Trust in this way is considered a Tax Avoidance Scheme.

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  1. What is an Employee Benefit Trust?

An Employee Benefit Trust is a trust set up specifically to hold assets to provide benefits to employees and their families.  An Employee Benefit Trust may has in recent years been used as a tax efficient method of enabling payments or distributions of income due to employees where such payments may otherwise be subject to tax.  

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  1. Employer Financed Retirement Benefit Schemes legislation

An Employer Financed Retirement Benefit Scheme (or “EFRB”) is an unregistered pension scheme set-up by an employer to provide retirement benefits to Directors and other senior members of staff.  Members of an EFRB will not receive the statutory protection afforded to beneficiaries of a registered pension but also are not limited by the annual or lifetime allowances which limit contributions to registered pension schemes.

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  1. Employer Financed Unapproved Retirement Benefit Scheme

An Employer Financed Retirement Benefit Scheme (or “EFRB”) is an unregistered pension scheme set-up by an employer to provide retirement benefits to Directors and other senior members of staff.  Members of an EFRB will not receive the statutory protection afforded to beneficiaries of a registered pension but also are not limited by the annual or lifetime allowances which limit contributions to registered pension schemes.

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  1. Letter from HMRC about Tax Avoidance

Letters from HMRC about Tax Avoidance are normally sent either as an enquiry or a Notice of Enforcement as an initial step when investigating Tax Avoidance Schemes or conventional underpayments of tax liabilities.  More seriously, correspondence from HMRC may indicate that there are ongoing Code 9 enquiries, although for most cases of fraud and criminal behaviour no such “tipping off” will be provided until the investigation has concluded. 

In the event such letters are ignored, this can lead to the imposition of substantial penalties (in addition to any tax liability) or prosecution.

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  1. Letters from HMRC about Tax Underpaid

Letters from HMRC about Tax Underpaid are normally sent initially as an enquiry or demand as an initial step when investigating conventional underpayments of tax liabilities and will depend upon whether returns have been filed or not, and whether there are suspicions of Tax Evasion, in which case there may additionally be a threat of prosecution.  In the event such letters are ignored, this can lead to the imposition of substantial penalties and interest charges (in addition to any tax liability), going back to when the first arrears accrued.

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  1. Tax Avoidance Schemes currently in the spotlight

Tax Avoidance Schemes currently in the spotlight are published online by HMRC as an update of its guidance notes, first published on 27 January 2014.  This list comprises what it considers specific targeted examples of popular Tax Avoidance Schemes entered into to exploit tax loopholes and mitigate the tax that would otherwise be payable.     

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  1. Tax Avoidance Scheme hit list

Tax Avoidance Schemes currently in the spotlight are published online by HMRC as an update of its guidance notes, first published on 27 January 2014.  This list comprises what it considers specific targeted examples of popular Tax Avoidance Schemes entered into to exploit tax loopholes and mitigate the tax that would otherwise be payable.     

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  1. Legal advice Tax Avoidance Schemes

Legal advice on Tax Avoidance Schemes will depend on the background of correspondence between you and HMRC, whether you have received a Follower Notice and whether representations have been provided to HMRC already.  A Tax Avoidance Scheme is not a legal mechanism for managing your affairs, although legal advice is necessary where there is a dispute as to whether your arrangement is a Tax Avoidance Scheme.

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  1. Warning of Enforcement action by HMRC

A Warning of Enforcement action by HMRC is something not to be taken lightly – where you or your company owes unpaid tax or are party to a Tax Avoidance Scheme which has aroused the suspicion of HMRC, you will receive a notice providing you a final opportunity to pay or explain your circumstances.  For a Notice of Enforcement, this often refers to Distraint over goods, otherwise it may be in respect of VAT security required, a Personal Liability Notice or Anti-Avoidance investigations into a purported Tax Avoidance Scheme.

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  1. HMRC Taking Control of Goods

Under the Taking Control of Goods Regulations, following the issue of a Notice of Enforcement HMRC may attend your trading premises to Take Control of Goods sufficient to satisfy any liability for tax.  This normally commences with a HMRC enforcement officer visiting your trading premises, listing the goods you own and issuing the Notice of Enforcement to take control and sell your goods.  This was previously known as Distraint upon goods (which remains the term currently used in Northern Ireland).

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  1. HMRC Enforcement Action

HMRC Enforcement Action is very wide under the various tax legislation as well as conventional civil routes available to creditors generally (including the Civil Procedure Rules 1998 (as amended)).  HMRC can seek Take Control of Goods, attach deductions to your earnings, seek a county court judgment or, more commonly, petition for your insolvency – bankruptcy for an individual and a winding-up order if you are a company.

To read more about what enforcement action you may be threatened with, please click here.

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  1. Negotiating Time to Pay with HMRC

A Time to Pay Agreement with HMRC is an arrangement whereby the taxpayer can seek agreement with HMRC to defer an immediate requirement for tax arrears or demands to be paid, to be replaced by instalment arrangements.  This will bring any Enforcement Action to an immediate standstill whilst you repay all of the liability owed to HMRC.  A Time to Pay Agreement will have to be managed at the same time as current tax liabilities and will not normally extend for longer than 12 months.

Please click here for more information on Time to Pay Agreements.

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  1. HMRC Claim Tax Avoidance Scheme

A HMRC Claim that you are a party to a Tax Avoidance Scheme is a very serious matter and may arise where no previous disclosure of such a scheme has been made or which arises as part of HMRC investigations.   Where a Tax Avoidance Scheme is suspected these schemes are currently facing pressure from HMRC for them to be abandoned or, as a minimum, harsh penalties to be paid for their continued use. 

HMRC claims for use of a Tax Avoidance Scheme are on the rise and will continue to be the focus for Central Government, following the much publicised misuse of such schemes and the increased funding provided to HMRC for the purpose of collecting the taxes unpaid through these schemes.  Recent legislation, comprising the Finance Acts 2017, has further increased the penalty for using a Tax Avoidance Scheme.

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  1. Contractor Loan Tax Avoidance Schemes

Contractor loan schemes are considered by HMRC to be Tax Avoidance Schemes promoted by tax advisers as a method to avoid tax on income payable by the employer company by loaning money to the contractor, often through a chain of trusts, which is never repaid.  On this basis the “loan” is actually income and must be declared to HMRC on your tax return.

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  1. HMRC Contractor Loan Schemes Settlement Opportunity

Contractor Loan Schemes are considered by HMRC to comprise Tax Avoidance Schemes promoted by tax advisers solely for the purpose of avoiding tax on income paid by an employer to the contractor, often through a chain of trusts, which is never repaid.  On this basis the “loan” is actually income and must be declared to HMRC on your tax return.  A Settlement Opportunity offered in 2011 expired in 2016 and the current Settlement Opportunity expires on 5 April 2019.

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  1. Winding-Up Petition by HMRC

A Winding-Up Petition is a Court application which can be made by any creditor, the Company or its Directors seeking a Court Order terminating a company’s business and placing it into the hands of the Official Receiver, as Liquidator, to liquidate all of the business and assets for the purpose of remitting the proceeds to ALL creditors, net of costs.  This is the most popular method by which HMRC deal with enforcement of any non-payment of tax liabilities by companies.

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  1. What is a Follower Notice?

A Follower Notice is a notice served on persons participating in a Tax Avoidance Schemes who are described as “followers” to a representative case decided in HMRC’s favour in respect of claims for tax and National Insurance, where their Tax Avoidance Scheme bears very similar characteristics.  A Follower Notice is often issued to Tax Avoidance Scheme participants after the lead case is decided. 

The use of a Follower Notice aims to reduce the time, complexity and cost of litigation by only dealing with a few lead representative cases at Court.

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  1. Accelerated Payment Notices Guidance

An Accelerated Payment Notice is a notice provided by HMRC to the taxpayer to remit the disputed Income Tax and National Insurance in the amount attributable to the net benefit whilst the tax dispute continues.  It is commonly sent as an alternative (or in addition to) a Follower Notice where the case, in principle at least, has similar circumstances and has been separately decided in Court.

Please see our webpage here which provides more information on Accelerated Payment Notices.

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  1. Accelerated Payment Notices Judicial Review

An Accelerated Payment Notice is a notice by HMRC to the taxpayer (during negotiations as to their tax liability arising as a result of the use of a Tax Avoidance Scheme) to remit the disputed income tax and National Insurance in the amount attributable to the net benefit they (HMRC) consider the tax payer received.  Accelerated Payment Notices cannot be appealed, but this has led to a considerable increase in the number of applications for a judicial review on numerous grounds including procedural impropriety and unreasonable behaviour by HMRC.

Please see our webpage here which provides more information on Accelerated Payment Notices.

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  1. 1. What is Disguised Remuneration?

  2. 2. What is Disguised Remuneration legislation?

  3. 3. Disguised Remuneration HMRC guidance.

  4. 4. Disguised Remuneration and recent legislative changes

  5. 5. Changes to Disguised Remuneration legislation

  6. 6. Disguised remuneration Finance Bill 2017

  7. 7. Disguised Remuneration definition

  8. 8. Disguised Remuneration rules

  9. 9. Are Disguised Remuneration Schemes legal?

  10. 10. What are some examples of Tax Avoidance?

  11. 11. How does new legislation affect my Tax Avoidance Scheme?

  12. 12. HMRC guidance on Disguised Remuneration

  13. 13. What is Tax Avoidance?

  14. 14. Is Tax Planning legal?

  15. 15. Tax Avoidance v Tax Evasion

  16. 16. What is Tax Avoidance and is it legal?

  17. 17. Is Tax Avoidance a crime?

  18. 18. Can you go to jail for not paying your taxes?

  19. 19. How long do you go to jail for tax evasion?

  20. 20. Tax loopholes for small business UK

  21. 21. What constitutes Tax Evasion?

  22. 22. What is Tax Evasion?

  23. 23. What is a Tax Avoidance scheme?

  24. 24. Employee Benefit Trust definition

  25. 25. What is an Employee Benefit Trust?

  26. 26. Employer Financed Retirement Benefit Schemes legislation

  27. 27. Employer Financed Unapproved Retirement Benefit Scheme

  28. 28. Letter from HMRC about Tax Avoidance

  29. 29. Letters from HMRC about Tax Underpaid

  30. 30. Tax Avoidance Schemes currently in the spotlight

  31. 31. Tax Avoidance Scheme hit list

  32. 32. Legal advice Tax Avoidance Schemes

  33. 33. Warning of Enforcement action by HMRC

  34. 34. HMRC Taking Control of Goods

  35. 35. HMRC Enforcement Action

  36. 36. Negotiating Time to Pay with HMRC

  37. 37. HMRC Claim Tax Avoidance Scheme

  38. 38. Contractor Loan Tax Avoidance Schemes

  39. 39. HMRC Contractor Loan Schemes Settlement Opportunity

  40. 40. Winding-Up Petition by HMRC

  41. 41. What is a Follower Notice?

  42. 42. Accelerated Payment Notices Guidance

  43. 43. Accelerated Payment Notices Judicial Review